Author: Hamilton

Hinrichs v. DOW Chemical Co. (Fraudulent Representation)

Posted on by Hamilton

In Hinrichs v. DOW Chemical Co. (2017AP2361), the Court of Appeals District II dismissed misrepresentation claims on the basis of the economic loss doctrine, but ruled the plaintiffs might be considered “the public” for the purposes of bringing forth a fraudulent representation claim.

 

Facts

Chris Hinrichs developed acrylic skylight panels for vehicles and owned Autovation Limited, which manufactured, distributed, and installed the panels. Autovation used a DOW Chemical adhesive to install the panels. When Hinrichs discovered some of the panels were cracking, an agent from DOW issued him a report stating that the adhesives were properly functioning. However, Hinrichs later discovered that the adhesives in the panels were in fact failing, damaging his products and significantly affecting his sales. Hinrichs and Autovation filed the instant claims of negligent misrepresentation, intentional misrepresentation, strict responsibility misrepresentation, and violation of Wisconsin’s fraudulent representations statute (Wis. Stat. § 100.18).

 

Economic Loss Doctrine

The court barred Hinrichs’s misrepresentation claims on the basis of the economic loss doctrine, which provides that plaintiffs cannot sue to recover solely economic losses from the nonperformance of a contract.

The court ruled the “fraud in inducement” exception to the economic loss doctrine did not apply because the misrepresentation did not occur before Hinrichs’s contract with DOW was formed and because the alleged misrepresentation was not extraneous to the contract. The “other property” exception to the economic loss doctrine did not apply because the damaged panels and the adhesive the parities contracted for were parts of an integrated system. Furthermore, Hindrichs could have foreseen that failure of the adhesives would damage the panels.

In short, Hinrichs and DOW had the opportunity to address these circumstances in their contract and, since they declined to do so, Hinrichs is not entitled to damages for economic loss.

 

Fraudulent Representation

 The court found that the plaintiffs’ complaint against DOW made a sufficient case for the claim of untrue, deceptive, or misleading representations under Wis. Stat. § 100.18 to go forward. However, the court was still unclear on whether Hinrichs and Autovation are members of “the public” who can bring a fraudulent representation claim against DOW. The appeals court remanded this aspect of the case, asking the circuit court to address whether Hinrichs and Autovation had a significant enough relationship with DOW to prohibit them from claiming fraudulent representation.

Nutt v. Union Pacific Railroad Co. (Driver Negligence)

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In Nutt v. Union Pacific Railroad Co. (2018AP695), the Court of Appeals District III held that Union Pacific was not liable for injuries to a driver struck at a railroad crossing.

A Union Pacific train struck Jordan Nutt at a crossing in Baldwin, Wisconsin. The crossing had a stop sign and a retroreflective railroad crossing sign to warn drivers of approaching trains. Nutt failed to yield to the approaching train and did not come to a complete stop at the stop sign. The train conductors appropriately sounded the horn and applied the emergency brake but could not stop in time to avoid hitting Nutt, who was rolling through the stop sign and onto the tracks. Nutt filed the instant negligence claims against Union Pacific.

First, Nutt argued Union Pacific should have installed flashing lights and gates at the crossing, instead of just the railroad crossing sign. However, the court ruled that, because the sign was installed using federal funds, the Federal Railroad Safety Act preempted Nutt’s claim.

Second, Nutt argued Union Pacific illegally installed the stop sign at the crossing. According to Nutt, without the stop sign, he would not have slowed to a rolling stop and would have made it through the intersection in time to avoid the train. The court ruled that there was no evidence that Union Pacific installed the stop sign. Furthermore, there was not evidence that the accident would have occurred if Nutt had followed the law and came to a complete stop at the stop sign.

Finally, Nutt argued Union Pacific’s negligent maintenance of the vegetation and roadbed at the crossing caused the accident. The court found no evidence that Nutt’s view of the tracks was obstructed by vegetation, nor that Union Pacific violated Wis. Stat. § 195.29(6), requiring 330 feet of vegetation cleared along the tracks in each direction. The court also denied Nutt’s claim that Union Pacific’s roadbed maintenance created an illegal and dangerous “hump” that contributed to the accident.

Overall, the court found that summary judgment was appropriate under Wisconsin’s comparative negligence statutes (Wis. Stat. § 895.045(1)) because Nutt’s negligence clearly exceeded Union Pacific’s.

ATRA Report Highlights Rise of Public Nuisance Lawsuits

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A recent report from the American Tort Reform Association (ATRA) outlines the rise in recent years of private plaintiff attorneys bringing lawsuits against businesses on behalf of local governments. Local litigation seeks to hold private businesses liable for broad issues including lead paint, contaminants such as PFAS and PCBs, opioids, and even the global issue of climate change. Plaintiffs are using vague “public nuisance” theory to support their claims.

For example, in the climate change cases, municipalities are using state and federal common laws of public nuisance to seek damages from fossil fuel companies. The localities argue fossil fuel companies should pay for infrastructure protecting against rising sea levels and temperatures because their carbon emissions contribute to global warming. Despite losses at the federal circuit court level, activist local governments are continuing to pursue climate change cases for political purposes, claiming they are drawing attention to the issue that Congress and the executive branch have “failed” to act upon.

In the opioid cases, plaintiff localities are accusing pharmaceutical companies of downplaying risks and illegally touting benefits of opioid products to medical professional prescribers, which plaintiffs claim led to the “public nuisance” of the opioid crisis. Over 1,000 opioid lawsuits across 40 states are ongoing. Many local lawsuits have been consolidated into federal court in Ohio, while others are being pursued in state courts. The local lawsuits are in addition to – and undermining – over 40 state attorneys general who are investigating and suing at the state level.

A recent decision in California state courts has further opened the door to broad public nuisance litigation. Plaintiff localities in the case argue the defendants’ promotion of then-legal lead paint created the current “public nuisance” of lead paint in homes. A California appeals court ordered the three defendants to pay a $409 million abatement fund to find and remediate residential lead paint. Although the defendants stopped promoting and selling lead paint once science began to show its harmful effects and the plaintiffs failed to show the defendants actually caused any real harm, the three defendant companies were held individually liable for the statewide issue that involved may additional actors, including homeowners, landlords, and even the state of California itself.

The ATRA report argues that not only do duplicative local lawsuits violate what in many states are constitutional powers given to the attorney general, they also cost local and state government more money in legal fees that could go to real policy solutions. ATRA suggests solutions including transparency laws for local governments retaining outside counsel and giving state attorneys general author to intervene in local lawsuits in order to curb costly and ineffective local litigation.

AG Kaul Asks Legislature for Approval to Withdraw from ACA Lawsuit

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Wisconsin Attorney General Josh Kaul has sent a letter to the legislature’s Joint Committee on Finance (JFC), requesting authorization to withdraw the state from multistate litigation seeking to declare the Affordable Care Act unconstitutional. The request to withdraw comes after a back and forth between Gov. Tony Evers, Kaul, and the legislature regarding the governor’s and attorney general’s authority, as amended by the 2018 extraordinary session legislation.

In his State of the State address, Evers directed Attorney General Josh Kaul to remove Wisconsin from the lawsuit. The governor’s office subsequently delivered a letter to Kaul requesting withdrawal of the Department of Justice’s authority to participate in the litigation. However, Evers walked back the statement after a Legislative Reference Bureau memo to Senate Majority Leader Scott Fitzgerald (R-Juneau) explained that the governor does not have the authority to request the attorney general discontinue an action. Instead, the newly enacted 2017 Act 369 requires the JFC to approve the withdrawal. Kaul also sent Evers a letter stating the attorney general does not have legal authority to withdraw from the lawsuit without JFC approval.

The Republican-majority JFC is currently reviewing Kaul’s request for authorization to withdraw from the lawsuit. Wisconsin was a leader in the litigation under former Republican Attorney General Brad Schimel.

Wisconsin Supreme Court February Oral Arguments

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The Wisconsin Supreme Court has released its calendar of oral arguments for February 2019. There will be several notable cases argued this month, addressing issues including medical malpractice, crime insurance, governmental immunity, and the federal Communications Decency Act.

Cases of interest include:

 

Leicht Transfer & Storage Co. v. Pallet Central Enterprises, Inc. (Crime Insurance Coverage)
Feb. 1

The issue before the court is whether amounts paid in response to forged invoices are covered losses under a crime insurance policy that covers forged checks.

The underlying claim in the case arose when Pallet Central forged invoices to Leicht. Leicht paid $505,000 in response to the forged invoices. When Leicht discovered the invoices were for pallets it had never ordered or received, it filed a claim for its losses to its insurer, Hiscox Insurance Company, under its forgery coverage policy.

The lower courts ruled that there was no coverage for the forged invoices because the policy covered only forged checks, and invoices themselves cannot be exchanged for money. Leicht argues that forged invoices should be considered a “direction to pay” under the covered losses in the Hiscox policy.

 

David Paynter v. ProAssurance Wisconsin Insurance Co. (Medical Malpractice)
Feb. 1

The issue before the court is whether an injury sustained in both Wisconsin and another state is a “foreign cause of action” under Wisconsin’s statute applying foreign statutes of limitation (Wis. Stat. § 893.07).

The underlying claim in the case arose when Dr. James Hamp, who operates offices in both Wisconsin and Michigan, misdiagnosed a growth on patient David Paynter, a Michigan resident. Paynter first saw Dr. Hamp in his Michigan office, but Dr. Hamp called Paynter with the misdiagnosis from his Wisconsin office. Paynter sued Dr. Hamp and both his Michigan and Wisconsin malpractice insurance policies.

The Supreme Court will decide whether Paynter’s injury arising in multiple states is a “foreign cause of action” under Wis. Stat. § 893.07, thus barring the claim under Michigan’s statute of limitations.

 

Security Finance v. Brian Kirsch (Wisconsin Consumer Act)
Feb. 1

The issue before the court is whether a consumer sued without first receiving a notice of right to cure default may sue a merchant for damages under the Wisconsin Consumer Act.

The underlying claim in this case arose when Security Finance sued Brian Kirsch for a default on a loan. Kirsch counterclaimed that Security Finance’s complaint failed to give him proper notice of right to cure the default. Security Finance ultimately voluntarily dismissed the case, but Kirsch wanted to maintain his counterclaims.

The Supreme Court will decide whether Kirsch can sue for damages under Ch. 427 of the Wisconsin Consumer Act because Security Finance failed to give proper notice of right to cure.

 

Alan Pinter v. Village of Stetsonville (Governmental Immunity)
Feb. 11

The issues before the court are 1) whether a village’s oral policy constitutes a ministerial duty, exempting it from governmental immunity protections and 2) whether expert testimony is required to prove a private nuisance.

The underlying claim in the case arose when the Village of Stetsonville failed to abide by its oral policy regarding removing excess wastewater during heavy rains. As a result, waste and sewage were deposited in Alan Pinter’s basement. Pinter filed the instant lawsuit, claiming negligence and private nuisance. The village argued it was protected under governmental immunity (Wis. Stat. § 891.80(4)).

Pinter argues that by not following the village’s oral policy, the village failed to perform a ministerial duty, exempting it from governmental immunity. The lower courts rejected Pinter’s argument and further dismissed Pinter’s claim for private nuisance because he failed to offer expert testimony.

 

Yasmeen Daniel v. Armslist, LLC (Communications Decency Act Liability)
Feb. 14

The issue before the court is whether the federal Communications Decency Act (CDA) allows a website to be held liable under Wisconsin law for publishing a third-party’s information.

The underlying claim is against Armslist.com, which connects arms buyers and sellers with each other. Radcliffe Haughton, who had been legally prohibited from gun ownership, obtained a gun via Armslist and used it to kill four people. The daughter of one of the victims filed several tort claims against Armslist based on the CDA.

The Supreme Court will decide whether Armslist is immune under the CDA because it only passively displays third-party sellers’ information.

 

 

Koss Corp. v. Park Bank (Liability for Embezzlement)

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In Koss Corp. v. Park Bank (2019 WI 7), the Wisconsin Supreme Court found that Park Bank was not liable for failing to protect Koss Corp. from its executive’s embezzlement. The court issued a plurality opinion written by Chief Justice Roggensack and Justice Ziegler, with a concurring opinion by Justices Anne Walsh Bradley, Abrahamson, and Dallet, upholding the lower court’s decision. Justices Kelly and Rebecca Bradley issued a dissent.

The case involved sophisticated and complicated embezzlement maneuvers by one of Koss Corporation’s executives, its vice president of finance. In total, the executive embezzled $31 million from the company.

The issue in the case was whether Park Bank acted in “bad faith” and was therefore liable for failing to protect Koss Corp. from the executive’s embezzlement. Because the statute does not define “bad faith,” the court grappled with what it means for a bank to act in bad faith. Justices Roggensack and Ziegler said bad faith is determined by acts evidencing dishonesty by the bank by willfully failing to investigate compelling and obvious known facts suggesting fiduciary misconduct due to a deliberate desire to evade knowledge of fiduciary misconduct.

Justices A.W. Bradley, Abrahamson, and Dallet agreed Park Bank was not liable, but came up with a different definition for bad faith and therefore did not join the lead opinion.

Justices Kelly and R.G. Bradley would have adopted a much lower standard for bad faith. They also found that the facts in this case could lead a jury to find that Park Bank acted in bad faith when it “remained intentionally ignorant of whether the individuals transacting business on Koss Corporation’s accounts had the authority to do so.”

 

Steadfast Insurance Co. v. Greenwich Insurance Co. (Duty to Defend)

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In Steadfast Insurance Co. v. Greenwich Insurance Co. (2019 WI 6), the Wisconsin Supreme Court said a previous insurer had a duty to defend Milwaukee Metropolitan Sewerage District (MMSD) for losses related to a rain event that occurred when MMSD had coverage with a subsequent insurer.

MMSD contracted with private companies to operate and maintain its sewerage system. Greenwich Insurance Co. insured United Water, which operated the system until February 29, 2008. Steadfast Insurance Co. insured Veolia, which subsequently operated the system. The rain event at issue here occurred in June 2008, when Steadfast was insuring Veolia and MMSD. However, it was alleged that United Water’s previous management was a cause of the June 2008 damage to the system. No damages were awarded to plaintiffs, but MMSD sought coverage for its defense costs in lawsuits resulting from the rain event. Steadfast paid $1.55 million for MMSD’s defense costs. Greenwich denied coverage to MMSD.

The court held that both the Steadfast policy and the Greenwich policy were primary and successive insurers of MMSD. Since the policies were not concurrent and they primarily insured two different entities (United Water and Veolia), Greenwich’s policy could not be an “other insurer” or excess insurer to the Steadfast coverage. Accordingly, the court held that Greenwich breached its duty to defend by erroneously determining it did not provide coverage for lawsuits arising from the June 2008 damage. The court emphasized that, in coverage disputes, insurers should move to bifurcate the coverage issue and stay the underlying liability issue to avoid risking a breach of duty to defend.

After determining Greenwich had a duty to defend, the court determined that Steadfast correctly brought a subrogation, not a contribution claim. The court then apportioned defense costs between the two insurers by applying a pro rata allocation based on the comparative value of the policy limits. Furthermore, the court awarded Steadfast attorney fees, arguing that Steadfast took the place of MMSD, and Greenwich would have owed MMSD attorney fees. This opinion marks the first time Wisconsin courts have awarded attorney fees for breach of a duty to defend from one insurer to another insurer who was subrogated to an insured’s rights.

The justices were split on several parts of the case, with three justices concurring in part and dissenting in part. Justice Ann Walsh Bradley, joined by Justice Rebecca Dallet, disagreed with the allocation of defense costs. Justice Walsh Bradley argued Greenwich should be liable for the entirety of the defense costs as a penalty for declining to uphold its duty to defend. However, Justice Walsh Bradley’s dissent also argues requiring Greenwich pay attorney fees sets a dangerous precedent because it departs from the “American Rule” that parties are responsible for their own attorney fees unless provided by contract or statute.

In another partial dissent, Justice R. Bradley agreed that defense costs should be allocated pro rata, but disagreed that Greenwich had a duty to defend. Justice R. Bradley noted that she agreed with Justice Walsh Bradley’s dissent regarding attorney fees.

Lee Quality Home Care LLC v. DHS (DHS Authority)

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In Lee Quality Home Care LLC v. DHS (2017AP1216), the Court of Appeals District IV held that the Wisconsin Department of Health Services (DHS) has the authority to recoup payments from a personal care provider for services performed by workers not trained according to DHS rules.

First, the court affirmed that the plaintiff Lee Quality Home Care did not train its workers according to DHS rules (Wis. Admin. Code § 105.17(1n)). Lee Quality argued that guidance documents from DHS relaxed personal care worker training requirements, but the court ruled that these documents did not change the administrative rules.

Because Lee Quality had not trained its workers according to DHS rules, the court held that DHS had the authority to recover Medicaid reimbursement payments from Lee Quality. Wis. Stat. § 49.45(2)(a)10.a. and Wis. Admin. Code § 108.02(9)(a) state that DHS can recover “improper” payments from providers. Federal code defines “improper payment” as a payment “made in an incorrect amount under statutory, contractual, administrative, or other legally applicable requirement” (42 C.F.R. § 431.958). The court determined that DHS’s payments to Lee Quality were “improper” because Lee Quality failed to comply with DHS’s “legally applicable” training requirements.

Among other arguments, Lee Quality contended that DHS cannot recover payments for services actually provided and that the payments were not “improper.” Lee Quality said Wis. Admin. Code § DHS 105.17(4)(c) provides that DHS give notice to noncompliant providers requiring providers to correct the noncompliance by a certain date. Instead of recollecting the Medicaid reimbursement payments, DHS should have allowed Lee Quality the opportunity to comply. The court rejected these arguments, allowing DHS to recover reimbursement payments to Lee Quality’s providers for services that they had performed.

Other Medicaid reimbursement cases regarding DHS authority are also making their way through Wisconsin courts. The Court of Appeals District III held in 2018 case Newcap, Inc. v. DHS (2017AP1432) that DHS has the authority to recoup Medicaid reimbursement payments for services provided when providers fail to maintain required records. However, Newcap did not have to repay DHS because the specific records in its case were not required by statutes or DHS rules.

In Kathleen Papa v. DHS, the Court of Appeals District II will decide whether DHS has the authority to recover Medicaid reimbursement payments for services provided when the provider fails to follow documentation requirements. The Great Lakes Legal Foundation and Wisconsin Manufacturers & Commerce have filed a joint amicus brief in this case.

State of Wisconsin ex rel. Annette Flynn v. Kemper Center, Inc. (Public Records)

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In State of Wisconsin ex rel. Annette Flynn v. Kemper Center, Inc. (2017AP1897), the Court of Appeals District II held that private corporation Kemper Center, Inc. is not a “quasi-governmental corporation” subject to the Wisconsin Public Records Law.

Kemper Center is a private corporation that leases property from Kenosha County and operates and maintains the property as a public park. Kenosha County provides some grants to Kemper Center, and other revenues come from rentals and user fees charged by Kemper Center.

Kenosha resident Annette Flynn filed a public records request for certain disclosures from Kemper Center. The issue before the court was whether Kemper Center is a “quasi-governmental corporation” under the definition of “authority” in Wis. Stat. §19.32(1), requiring it to disclose records to Flynn.

Citing factors from a previous Supreme Court decision that determined Beaver Dam Area Economic Development Corporation was a quasi-governmental corporation, the appeals court held that Kemper Center is not a quasi-governmental corporation because:

  1. Despite receiving grants from the County, Kemper Center is mostly funded by sources other than taxpayer dollars.
  2. While Kemper Center’s operation of the park does provide a public benefit, it does not provide an exclusively governmental function.
  3. Kemper Center does not have a public appearance of being governmental in nature. The court determined it is clear that the County owns the park, but Kemper Center, Inc.’s operation of the park does not appear governmental.
  4. The County does not have a significant degree of control over the Kemper Center operations.

Wisconsin Supreme Court Reins In Department of Natural Resources

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In a victory for property owners, the Supreme Court of Wisconsin held (6-1) that the Department of Natural Resources (DNR) does not have the authority to amend an expired construction permit (Myers v. Department of Natural Resources (2019 WI 5)). The opinion was authored by Justice Rebecca Dallet, her first opinion involving agency authority.

 

Facts

The DNR issued a permit to Philip and Terrie Myers to build a pier on Lake Superior. Over ten years later, DNR issued an amendment to the permit, requiring the Myers to significantly change their pier. The Myers filed a petition for judicial review of the DNR’s permit amendment. The issue before the Supreme Court was whether DNR has the statutory authority to amend the previously issued permit.

 

Court Decision

DNR argued that a condition within the permit stating “the authority herein granted can be amended or rescinded…” provided the agency authority to amend the permit. However, the court ruled that without explicit statutory authorization the condition itself did not allow DNR to amend the permit.

DNR further argued its statutory authority came from Wis. Stat. § 30.12(3m)(d)2. and § 30.12(3m)(c), which states that DNR “may establish reasonable conditions” in permits to satisfy certain statutory criteria for building piers. According to the DNR, the condition that DNR may amend the permit was such a “reasonable condition.” However, the court read the past tense of the statute to mean that the criteria must be satisfied only when the permit is granted. Once the permit is issued, the statute does not allow DNR ongoing review and authority to enforce whether the criteria are continuously being met.

Finally, DNR argued that Wis. Stat. § 30.2095(2), which states DNR may modify permits for good cause before their expiration, gave it authority to amend the Myers’ permit because the permit never expired.  However, the court, rejecting DNR’s reading of § 30.2095(1), determined the permit did expire because the Myers completed construction within the authorized three-year period.

In a dissent, Justice Walsh Bradley argued that DNR does have the authority to amend permits. Walsh Bradley states the statutes necessarily imply that DNR has the authority to continuously enforce the § 30.12(3m)(c) criteria. Furthermore, pier permits apply not only for construction but also for ongoing maintenance, so the Myers’ permit was not expired.